China’s Take on iPhones: It May Surprise You

Never underestimate China, or prejudge the taste of the Chinese consumer.

While American corporations weren’t watching, it seems, the Chinese outgrew their beads-and-trinkets phase.

Meanwhile, I’ve found so far no straight answers as to why Apple’s deal with China Mobile has been delayed.

It’s well known that China Mobile’s proprietary TD-SCDMA network has never worked as well as its competitors’ 3G network, deployed by China Telecom and China Unicom. China Mobile’s TD-SCDMA network cannot offer a “good enough” iPhone user experience. This is likely one reason why Apple might have been reluctant to play by China Mobile’s rules and tried to play hardball with China’s largest cellular operator.

Looking at Apple’s iPhone strategy in China, one Chinese mobile industry observer, who spoke on the condition of anonymity, believes Apple is smart not to reduce the price of 5c. She predicts that price cuts won’t advance Apple’s China strategy.

One reason is that the import tax in China is very high. Reducing the price only reduces Apple’s bottom line. Indeed, iPhones sold in China are subject to a 17 percent value-added tax.

Second, it also makes sense to price hardware relatively higher in China, compared to other regions, because Chinese people are less willing to spend money for apps.

Third, my Chinese industry observer noted, “Apple doesn’t need to compete with Samsung in the middle range of prices.” She pointed out that Samsung already has too many devices in that range.

Her advice to Apple? “Just stay in the high-end. Keep margin until they have innovative products.”

In nutshell, she described Chinese consumers as follows: “High-end customers don’t care about price. They care about brand.” Besides, “Apple’s software platform and quality deserves the price,” she added.

Bottom line: If those educated Chinese consumers and industry sources are right, Apple’s China strategy, after all, might not be so far off the mark.

How Lenovo will be positioned against Apple in China Mobile would be an interesting question to ask. In fact, what I am hearing from Japan is the following. Now that NTT Docomo supports iPhone, Apple is asking NTT Docomo to ensure that iPhones "make up roughly 40% of NTT Docomo's all new contracts. This figure is seen as the quota that Apple and DoCoMo agreed on."

China Mobile is expected to officially launch (support) the iPhone later this year. This will spike iPhone sales.

Lenovo is the largest supplier to China Mobile. I wonder what Lenovo think about the impending launch of iPhone? In your position, maybe you can ask them ;-)

You are right, China iPhone sales are NOT surging as in the past. However, with little direct promotion, and little to no 3G coverage, China coounts ~ 50 million iPhone subscribers. Outstanding result for any handset maker.

In perspective, of the ccompanines driving internet mobile (Google, Amazon, Facebook and Apple), only Apple has meaningful revenues from China market. (again, with little formal promotion and no support from China Mobile)

@tektonikshift, there is certain truth and wisdom in what you are saying here.

However, for Apple to get over the hump with the company's currently stagnant smarketpone market share in China, Apple needs to turn iPhone 5C into a different kind of "hit" product with the Chinese audience.

I just can't believe Apple can sell iphone 5c for 4,488RMB with a straight face, if you read Chinese blogs they all think it's kinda stupid. Price wise, there is really no difference between iphone 5c and 5s. It's like LV all of a sudden made a "value oriented" handdbag that used inferior materials but it's still more expensive than every other handbags you see in the shop. If Apple is serious about Chinese market, they should price something at 2500RMB with no contract, that's is the sweet spot for high end smart phones in China right now. (1 - 2 month salary) And guess what, that's how much Xiaomi Mi3 cost. (Real Values phone in China cost only ~700RMB with no subsidy such as Xiaomi's Red Rice)

In the longterm, having only 5% market share can really hurt apple, the Chinese app eco-system is fairly isolated with it's own social net app, games, camera, music apps etc. If market share remain this low, it's may not make sense for popular apps to keep updating their iOS version, and instead it will get lower performance ported versions or even no more update.. As Chinese app eco-system is isolated, the appstore can benifit from the large number of English language apps, and it will fall behind. This will make iOS a burden rather than an advange, thus goes any premium Apple is able to charge. In the end, only rich folk who don't really use technology but need a status symbol will buy iphones. I bet Apple don't want to end up like that.

2LED, A7 64bit processor, and 1080p front facing these features cost Chinese only extra $10/month for iPhone5s instead of iPhone5c. If I were them, I would definitely go for iPhone5s. Do you think that people who can afford a high-end phone really cares about this $10? There's no doubt in my mind that some people will go for iPhone5c because of color, but I don't see that how they can help on increasing Apple's current market share in China, which is only 5% now.

My concluson: Apple's current strategy of iPhone5c in China is becoming failure...